13th March 2017
Equity markets treaded water this week as investors waited for Friday’s (10 March 2017) US February employment data after the Federal Reserve (Fed) policymakers made it clear that the US central bank intends to raise interest rates at its meeting on 14-15 March 2017 if employment and inflation continues to meet their expectations.
The US unemployment rate fell to 4.7% (from 4.8%) as employers added 235,000 jobs during February (more than economists had forecast). Hourly earnings rose 0.2%, while the participation rate ticked up a whisker from 62.9% to 63%.
Consequently it is now a near certainty that the Fed will increase interest rates next week (15 March 2017).
Elsewhere, the European Central Bank (ECB) increased its growth and inflation forecasts for the eurozone and during the subsequent press conference Mario Draghi, the ECB President, had a hawkish tone when talking about monetary policy (saying that the next likely move in eurozone interest rates will be higher) and went on to say that there was no longer a sense of urgency to prop up the eurozone economy. However, he also said that the ECB will look through transient changes in inflation and that a significant degree of stimulus is still needed!
As stated above, the Fed’s monetary policy meeting on 14-15 March 2017 is the main focal point this coming week. Despite the near certain interest rate increase, focus will be on the tone of the Fed’s press conference at the end of the meeting for clues on the timing of future moves.
The day after the Fed’s decision, the Bank of England’s monetary policy meeting concludes. Despite stronger than expected economic growth since the EU Referendum vote on 23 June 2016 and a recent pick-up in inflation, I expect UK interest rates to remain unchanged as recent economic data is showing signs of turning down as Brexit uncertainty is finally starting to build.
Also this week we have the Dutch general election. Given the current ‘populist’ political movement, all eyes will be on how well the ‘Party for Freedom’ (led by Geert Wilders) does.
Ian Copelin, Investment Management Expert*
*Ian Copelin is an Investment Director at Wealth at Work Limited which is a member of the Wealth at Work group of companies